NFTX

What is NFTX?

NFTX is a groundbreaking protocol designed to enhance the liquidity and functionality of non-fungible tokens (NFTs) within the decentralized finance (DeFi) space. The project serves a dual purpose: (A) wrapping NFTs of similar value into fungible ERC20 "vTokens," and (B) stimulating liquid markets for these vTokens, consequently creating liquidity for the underlying NFTs. The terms "vToken" and "vault" are used interchangeably, as each vToken contract acts as a vault for holding its respective NFTs. Importantly, vTokens are backed on a 1:1 ratio by NFTs, ensuring transparency and stability in the protocol.

Exchange Mechanism

The exchange process on NFTX involves wrapping, trading, and burning vTokens. When a user buys an NFT, they send ETH, which is converted into vToken via an Automated Market Maker (AMM) before being burned for the NFT, with a redeem fee deducted in ETH. Conversely, selling an NFT follows the process of NFT to vToken conversion, subsequent vToken sale for Wrapped ETH (WETH), and return of funds to the seller after a mint fee deduction. Vaults charge fees in ETH, and AMM pools charge fees in vToken or WETH for each trade, with generated fees directed to inventory and liquidity providers.

Earning Yield and Staking

NFTX introduces two ways to earn yield: inventory staking and liquidity provision. Inventory staking incentivizes NFT deposits, rewarding stakers with 20% of ETH from vault fees. Liquidity providers, akin to Uniswap V3, earn 80% of ETH vault fees alongside AMM trade fees. Stakers benefit without facing impermanent loss risks associated with active LP management.

Vault Creation & Management

Vaults, created through the Vault Factory contract, are linked to specific NFT collections. Vault managers, initially the creator's address, can adjust settings, call permissioned functions, and finalize the vault for public use. Customizable fee structures further enhance flexibility, allowing vaults to have unique fee settings.

On-ramping & Off-ramping

On-ramping involves increasing inventory or liquidity positions, while off-ramping is the reverse. Users can choose between NFTs or vToken for on-ramping, with mint fees waived for NFT-based on-ramping. Off-ramping also provides flexibility, enabling users to choose between NFTs or vToken.

Positions & Timelocks

Inventory staking and LP positions come with timelocks, discouraging users from exploiting vault fees by quickly switching assets. Early withdrawal fees, starting at 10%, decrease linearly to zero during the timelock period, providing an option to override the timelock for a fee.

Security Timeline

Security evaluations, vulnerabilities, and exploits have played a crucial role in the evolution of NFTX.

NFTX v1:

• Audit for v1 conducted in November 2020.
• Deployment of NFTX v1 took place in December 2020.
• Further security assessment in February 2021.

NFTX v2:

• Comprehensive audit for v2 conducted in May 2021.
• NFTX v2 deployed in June 2021, with a subsequent recovery of assets and minor DAO loss in the same month.
• Additional audit for v2.1 conducted in December 2021.
• Deployment of NFTX v2.1, featuring Inventory Staking, occurred in January 2022.
• Ongoing security evaluations for the existing protocol throughout April 2022.
• Deployment of Marketplace0xZap, an un-audited component, took place in September 2022.
• Evaluation of 0n1, related to both Marketplace0xZap and CreateVaultZap, was conducted in November 2022.

Team Background

NFTX is a community-driven platform facilitating the creation of index funds on the Ethereum blockchain. The project relies on a decentralized autonomous organization (DAO) for governance. To ensure fair decision-making, any proposal for changes requires support from 80% of all voting tokens. The voting period spans 24 hours, preventing a monopoly on decision-making within the NFTX ecosystem.

Project Development

NFTX V3 represents a significant evolution of the NFTX protocol, introducing crucial improvements and features. Boasting over 3,700 lines of audited Solidity code and accompanied by a newly developed web app, this version marks the project's most substantial release to date. One of the key enhancements is the incorporation of a dedicated Automated Market Maker (AMM), a forked version of Uniswap V3. Unlike its predecessor, V2, which utilized Sushiswap, NFTX V3's AMM pairs vTokens with Wrapped ETH (WETH) and offers fee tiers of 0.3% and 3%.

Additional modifications include a shift in fee structures, with vault fees now denominated in ETH rather than vToken. Moreover, NFTX V3 utilizes ERC721 tokens to represent both inventory staking and liquidity positions. The introduction of premium fees adds a unique dynamic, creating a Dutch auction mechanism for newly deposited NFTs. Despite rigorous security audits, the NFTX DAO exercises caution during the migration of treasury assets, urging users to approach the early weeks post-launch as a beta period. NFTX V3 underscores a commitment to refining user and developer experiences, offering a robust foundation for ongoing development within the decentralized finance (DeFi) and non-fungible token (NFT) space.